Gold will climb toward $1,900 an ounce and average a record in the first half of this year as central-bank stimulus boosts investment demand, according to Thomson Reuters GFMS.
While investment fell 1.2 percent last year in tonnage, it set a record of about $87 billion as prices averaged the most ever, and will jump 20 percent in the first half from a year earlier, the London-based researcher said today in a report. Central banks added the most gold to reserves in 48 years in 2012 and will buy another 280 metric tons in the first half, countering a drop in jewelry purchases and higher recycling.
Bullion rose a 12th straight year in 2012 as central banks from Europe to China pledged more stimulus to bolster economic growth. Still, prices slid to a four-month low Jan. 4 after Federal Reserve minutes showed some policy makers favored ending $85 billion in monthly bond purchases this year as the recovery gains traction. Goldman Sachs Group Inc. and Credit Suisse Group AG are among banks that say prices will probably peak this year.
“Although there is now growing speculation around the structure and longevity of the Fed’s quantitative-easing program, policies of ultra-low interest rates across the western economies will persist in 2013,” Philip Klapwijk, global head of metals analytics at GFMS, said in a separate statement. “This will continue to support investor interest in gold in the absence of low-risk investments that can offer acceptable yields.”
Bullion for immediate delivery rose 0.3 percent this month to $1,680.05 by 4:40 p.m. in London. It averaged $1,669 last year and will average $1,775 in the six months through June as price gains accelerate in the second quarter and may “test” $1,900, according to GFMS, a unit of Thomson Reuters Corp. Gold reached a record $1,921.15 in September 2011.
Total investment slid to 1,614 tons last year and will jump to 840 tons in the first half, from 702 tons a year earlier, the researcher said. Bar demand fell 20 percent to 961 tons in 2012 and will rebound 8.5 percent in the first half. Coin minting slumped almost 19 percent to a four-year low of 199 tons in 2012 and will rise about 3.8 percent in the first half, GFMS said.
“We think the environment for gold investment remains pretty positive, at least in 2013,” Klapwijk said today in Toronto. “I think that could change if we were to look at 2014, 2015.”
Investors hold 2,619 tons through gold-backed exchange-traded products, about 0.5 percent below the record set Dec. 20, data compiled by Bloomberg show.
Jewelry demand dropped 4.4 percent to a three-year low of 1,885 tons last year amid higher prices and import taxes in India, GFMS said. China’s jewelry fabrication fell less than 1 percent in 2012, the first annual drop in nine years, the researcher said. It expects global jewelry demand to fall 4.2 percent to 891 tons in the six months through June.
“I think what’s left in terms of jewelry demand, for example, in western markets is reasonably more robust now, at least until you see a big hit for example in the luxury market,” Klapwijk said.
India’s demand is expected to be “a tad weaker” in the first two quarters of the year and “a little better” in the second half on expectations for a strong wedding season, he said.
Nations from Brazil to Iraq to Russia are buying metal to add to official reserves. Central-bank purchases increased 17 percent to 536 tons last year, and additions in the first half will be 1.2 percent higher than a year earlier, GFMS estimates. It said the figures don’t include the increase in reserves reported by Turkey, which has been accepting gold in its reserve requirements from commercial banks.
Purchases were “again driven by several central banks’ actions to moderate exposure to the major currencies, particularly in light of ongoing loose monetary policies and last year’s escalating sovereign debt concerns,” Klapwijk said. “We expect that large net purchases by the official sector will continue this year.”
Scrap sales fell 1.6 percent last year to a four-year low of 1,642 tons, GFMS estimates. Recycling will increase 7.5 percent to 827 tons in the first half as higher prices encourage selling, it said. Mine output added 0.2 percent to a record 2,841.9 tons in 2012 and may be 1,389 tons in the first half, up 1.5 percent from a year earlier, the researcher said. Gold producers’ average total cash costs climbed 17 percent to a record $736 an ounce in the first nine months of 2012, it said.
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